Invest Like the Best with Patrick O'Shaughnessy
· William Hockey
[00:00:00] S1: The leapfrogging that happened in Asia is obviously quite well known. China skipped the laptop, went straight to the mobile phone. Most famously, we skipped online e-commerce and went straight to social commerce in China. There's gonna be leapfrogging as well. And you're gonna see the same thing in financial services. Financial services tend to be most innovative and most progressive in the worst countries. You can see this in Argentina, you can see this in Iran, you can see this in other places. The Iranian financial system, say what you will – it's complicated. They have to deal with a lot of incredible constraints and thus they've built a lot of bespoke stuff just for themselves because they do not have access to global financial markets. And when you get to design things from scratch, you end up actually building things a little bit differently. And that's actually quite interesting. If you look at these emerging markets, Africa, for example, they were the first ones to do mobile payments and M-PESA decades ago. Well before Venmo. If you talk to them, they are actually quite a bit more open. They are used to their category being somewhat disrupted. An interesting thing is they have a bit of access to differentiated capital, which is differentiated talent. If you're in the US, pardon the banks that I'll shit on here, but you do not have access to the top talent. The top talent’s going to Anthropic, they're going to Google, et cetera. But if you believe that brains are distributed equally, you go to Congo and there's going to be some proportion of equally smart people as there are in France. There’s no Anthropic to go to. They don't have the ability to move to London and go to DeepMind. But there's still a pretty decent talent pool there. They're going to go to where there is job safety and where there is money. That tends to be in a lot of emerging markets, the breweries and the banks. That's where the money is. And so the talent, I'd say the middle level and top can actually be quite a bit higher than people think. I'd say, take your emerging markets bank executive team – they're hands down way better than I think probably what you see in the Western world. They also have the ability to verticalize much better than they do in the US, because we already have amazing software, amazing retail experiences down the entire stack.
· William Hockey, Patrick O'Shaughnessy
In most emerging markets or in a developing country, everybody has a bank account. A lot of the people who have a phone have a bank account so they can actually cross sell there effectively. You and I have talked about this before, but I think one of the most interesting companies out there is Kaspi in Kazakhstan. [00:00:00] S0: Fascinating. Can you explain it? [00:00:00] S1: They started out by buying a bank, and then they just built. [00:00:00] S0: Did everything. [00:00:00] S1: Did everything. They're the largest e-commerce company, the largest bank. You pay your taxes on Kaspi. You can renew your driver's licences on Kaspi. Because what they realized is where people start – okay, maybe people start in social media, but they also start in financial services. And so if we require financial services, we can cross sell and we can distribute products there. The largest bank in Congo has been called Rawbank. Highly sophisticated, download the mobile app. It's way better than anything we have here in the US. You can upgrade your TV subscription on it. Imagine JP Morgan doing that, or Bank of America doing that, or Wells Fargo doing that. Or candidly, even US fintechs doing that. Even if they could build that, there's no market for that. And so their ability to land and expand is fundamentally different. And you know, the good thing for us is, in all these countries, the main currency is the dollar. And so our ability to kind of innovate with them is much more akin to what a fintech looks like in the US than maybe a large traditional bank.
· William Hockey, Patrick O'Shaughnessy
[00:00:00] S1: Did everything. They're the largest e-commerce company, the largest bank. You pay your taxes on Kaspi. You can renew your driver's licences on Kaspi. Because what they realized is where people start – okay, maybe people start in social media, but they also start in financial services. And so if we require financial services, we can cross sell and we can distribute products there. The largest bank in Congo has been called Rawbank. Highly sophisticated, download the mobile app. It's way better than anything we have here in the US. You can upgrade your TV subscription on it. Imagine JP Morgan doing that, or Bank of America doing that, or Wells Fargo doing that. Or candidly, even US fintechs doing that. Even if they could build that, there's no market for that. And so their ability to land and expand is fundamentally different. And you know, the good thing for us is, in all these countries, the main currency is the dollar. And so our ability to kind of innovate with them is much more akin to what a fintech looks like in the US than maybe a large traditional bank. [00:00:00] S0: Do you end up earning similar amounts of revenue from outside the US as you do inside because of these potential relationships?
· Patrick O'Shaughnessy, William Hockey
[00:00:00] S0: Do you end up earning similar amounts of revenue from outside the US as you do inside because of these potential relationships? [00:00:00] S1: The US market is so good and fintech is so developed. One of our theses is fintech is probably gonna be the last area that is somewhat maybe disrupted by AI. I think what you'll see is you'll see a collapse in domestic fintech and enterprise software. And you're already seeing this with the Ramp and stuff of the world as they go deeper into the workflow management side. Good thing for us, some of our customers are growing just so quickly. But the rest of the world is also, it's a big part of our revenue. It's something that we're super excited about as well. It can be both like Western Europe or emerging markets. [00:00:00] S0: Can you say more about this comment that the Silicon Valley along with Beijing is the most consensus place? As you traipse around California, what strikes you as the strangest? You're building something so different. You spend so much more of your time away from there. You're able to get outside perspective despite being of that place originally. What would you say stands out as the strangest elements of it and its culture today?
· William Hockey
[00:00:00] S1: I’m a product of Silicon Valley. I've been there since I was 21. Started some of the top companies in Silicon Valley. I am a product of that. But I think as you get older and as you travel more, you have the ability to probably look back and be more retrospective on the society you grew up in. And SF and Silicon Valley, it's an elite dominated society whether we like it or not. It's probably more akin to Wall Street in the 1990s than it is to what we want it to be, which is like a research lab in Cambridge in the 1950s. Maybe that was Silicon Valley in the 90s, but it's not anymore. And what then happens is elites end up building software for elites. And I think that has somewhat made sense, because if you look at consumer buying patterns, people buy something that's aspirational and then it moves down market. But when you do that, you can start to drink your own Kool-Aid a little bit too much. And I think that has probably happened in Silicon Valley. Because we talk to each other, we build for each other, and we think that the market is each other, but we don't actually look broader than that. And the companies that figure that out, they do really well. If you look at AI, our research labs are doing fantastic. Because that's a consensus-oriented problem. If you take a bunch of people that are super smart, and you pretty much blind off everything from view, and you can all talk and you can all share ideas, and that's a fantastic research place. And we are going to win on that alone. But as you think about applicability to people's everyday lives, people in Silicon Valley don't live everybody else's lives. They don't live their lives as Americans, they don't live the lives of other people outside the world. And so our ability to actually build software or have ideas or perspectives that resonate, is probably at a low point in the entire time I've been here. Silicon Valley is not a popular place, and I think we tend to forget that. We think we're at the top of the world, but – I don't know what our approval ratings are, but I think they're probably pretty dang low. And I think that's for good reason. I think it's something that I at least try to focus on a lot, because I have to build software, and I have to build products that are applicable to outside the walls of San Francisco and New York. But that's probably less and less the case.
· Patrick O'Shaughnessy
[00:00:00] S0: One of the things that you've done that's so unique is not raise money, but built at a pace and a scale that looks as though you raised a ton of money. Suffice to say, it's huge. Talk about that decision, what building a company where you and the employees basically own the whole thing feels like, relative to having built a marquee company that was venture backed. I want to go into all the various lessons that you've learned, we'll spend a lot of time in this section. But at a high level, why did you choose to do it this way in the first place?